Do You Simply Complain About Taxes, or Do You Have a Strategic Plan to Reduce the Taxes You Pay?
We have yet met a businessperson who does not complain about paying income taxes. The typical small business owner works very long hours only to see the tax authorities walk away with a significant percentage of their earnings.
Despite not liking taxes and wanting to pay less of them, many entrepreneurs lack a tax strategy. The lack of a tax strategic plan can be quite costly.
Why Are Taxes Ignored
We believe that many entrepreneurs focus too much on making sales. From the day that the business begins, the business plan (assuming one exists) is to make as much revenue as possible to pay the expenses of the business. Business owners often ignore tax planning when the business is started because the owner is attempting to conserve cash because of limited financial resources and in the early years is reporting losses or minor profits. The owner very likely is thinking that “I’ll worry about tax planning when the business becomes profitable.” The problem with this approach is that it does not change when the business grows and taxes become a significant outlay.
While revenues from sales are very important, other facets of the business should not be ignored. One facet of the business that is often ignored is engaging in meaningful tax planning. Forget about net profits from a business perspective where net profits are equal to revenues less expenses. Remember that your “true” net profits are revenues less expenses, and one of the most significant expenses you pay, are income taxes. You need to think on a cash flow basis. If you can decrease the taxes you pay, your net cash flows will increase and your business becomes more profitable.
Examples of Meaningful Tax Planning
Work with an experienced tax professional. If you call your tax professional and s/he does not know the answer, do they get back to you after researching the issue? While working with an experienced tax professional may be more expensive, remember that you get what you pay for. If you attempt to cut corners, it usually will cost you more in the long run.
Consider taxes to be a business expense that needs to be periodically reviewed to keep it in check. If you take your tax liability as a percentage of your business revenues, where does it rank? It very likely is one of the largest expenses the business pays, if not the largest.
Periodically request a meeting with your tax advisor to discuss what s/he considers to be meaningful issues your business needs to address.
Work with a tax professional who keeps you abreast of current tax developments. If your tax pro has a blog, read it to keep abreast of important matters.
Read the information your tax pro sends you about important tax issues. After carefully reading those materials, call your tax pro to discuss how they may impact your business. Do not simply ignore those emails or letters thinking that they don’t apply to your business or you will get around to them later (you won’t).
Inquire if your tax entity is tax efficient. Tax laws are constanting changing. Have you reviewed your tax entity (sole proprietorship, partnership, C corporation, S corporation) with your tax advisor? The ideal tax entity when the business was formed may no longer be the ideal entity in today’s tax climate.
Understand how your business entity’s taxes are computed. It is not uncommon for a business owner not to understand how tax flow-through entities work, basis requirements, and what constitutes reasonable compensation.
Call your tax professional to understand how new tax laws impact your business. Tax laws are constantly changing. Perhaps you need to make changes in your business.
Compare the cost of buying new equipment against leading. Leasing conserves the initial cash outlay and may be a consideration if obsolescence is of concern or having the latest technological advances is necessary.
Tax Planning Tip:
Nobody knows your business better than you and nobody should be more concerned about controlling your company’s expenses than you. Taxes are a very significant expense for business owners. Be proactive and call your tax professional today.
If you would like to discuss your business or personal tax planning, tax preparation and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton PA CPA office to discuss your situation. You can also schedule a consultation at Click Here.
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BE SURE TO READ THE DISCLAIMER PAGE: Tax laws, IRS rules and regulations change frequently. Although we hope you’ll find this information helpful, this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher shall not assume liability for any losses, injuries, or damages from the display or use of this information.
About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS licensed Enrolled Agent and who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA, which includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, Frazer, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, West Chester in Berks, Chester, Delaware, Montgomery and Philadelphia Counties, as well as clients in Delaware, New Jersey, New York and throughout the continental USA.
A Certified Tax Resolution Specialist, Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.